“This, I think, was the Big One, where the fleet valuations fell out and took this company out.”
By Wolf Richter for WOLF STREET.
“On our lots, there are no lookers for used sleepers, and we will sell new sleepers at a loss to clear them out, and new orders for sleepers have come to a stop,” a heavy truck dealer who owns two stores with several franchises told me. The truck dealer was talking about the turmoil in the heavy-truck business, where orders for new Class-8 trucks have collapsed by as much as 80% year-over-year…
…and where the used-truck market is now being flooded by tractors from the nearly 800 trucking companies that have shut down this year, including Celadon Group, which announced on December 9 that it had filed for bankruptcy and would cease operations. It was the largest truckload carrier to file for bankruptcy in US history [here’s my take: Accounting Fraud & Freight Recession Topple Celadon, Largest Truckload-Carrier Bankruptcy in US History]. The company had about 2,700 tractors, some of which were being repossessed at truckstops and elsewhere by creditors even before the bankruptcy announcement.
“This, I think, was the Big One, where the fleet valuations fell out and took this company out,” said the truck dealer, who wishes to remain anonymous. “There will be other fleets to follow Celadon, as assets are valued in the months to come, and accountants get wise to their real book value as compared to market reality.”
And this is what the heavy-truck dealer then reported:
The Caledon issue, which I have watched for years, will drive the already depressed used tractor market down. When these units hit the market, they will find few interested dealers, looking to add equipment, to sit next to inventory that is already overaged or overvalued.
The dealer network as a whole did a very bad job paying attention to the demise of the tractor market.
Adding to the issues are units traded in over the past 90 days, or units that will be forced to trade in over the weeks to come when the new trucks will be delivered; these trade-in values were negotiated on the new-truck order dates 9 to 12 months ago, on contracts that were cut and prices leveled 9 to 12 months ago, with most having a “trade terms” condition but no evaluation setup for market changes.
These dealers – many of them have not been through the downturns I have seen – were rocking and rolling, void of the thought that the new and used-sleeper market would crash.
They now have these two-fold issues, where the used trucks have piled up next to the new, and they are taking sizable losses to just cut and dump trucks.
Most dealers this year stayed away from auctions on units, except for the “Dirty Construction Trucks,” which remain quite an active segment. Inverse to the past, you will see dealer units next to the Caledon units, at auctions to come; with dealers’ hands firmly planted in their pockets.
This situation has led several OEMs [truck manufacturers] to get back into the trade-in business, where they are offering to bring in values and take trades off dealers’ hands, on deals of all sizes, just to move new trucks. This will just kick the can down the street for later, when the used truck centers of the truck manufacturers will overflow, and then those units will be dumped.
[These used-truck centers include Arrow Truck Sales, with 17 centers in the US, owned by Volvo Trucks, which manufactures Mack and Volvo trucks; and International Used Truck Centers, with 16 centers in the US, owned by International, which manufactures Navistar and International trucks.]In general, the matrix of the industry is changing and the manufacturers are slow to adapt to change, but are in uncharted territory on their own side as well.
I use Truckpaper as a gauge to current conditions; as an example, here are current counts, listed on their forum by category:
- Used Conventional Sleepers: 33,164
- New Sleepers: 6,409
- Used Conventional Day-Cabs: 16,993
- New Day Cabs: 3,354
But the real numbers might be a lot higher. We have to enter about 25 fields, add photos, and then key in a narrative for every unit listed. You can’t list quantity, so most dealers with quantity will list 5 to 10 units out of lots, which have counts well above these numbers. Factor in these details, and factor in dealers who don’t list at all, and one might make the case for the real number of units to be 30% to 70% higher.
Next will be the units dumped by the energy sector that is crashing fast. Their units will create problems. One might say they will be dumping “Dirty Trucks” too, but that is not the case. Most are custom-built for an oil-field job and can’t be brought to the rest of the country to find a second life.
One player is Custom Truck One Source, a division of Blackstone, that has gone into the business of being a secondary source of new trucks. They have cut deals with all of the OEMs, stocked up on over 2,400 units that are now aging. These units mounted with bodies and equipment are ready to go, but are finding few takers.
2020 Freightliner 122SD 12×6 National NBT55128 Boom Truck for sale at Custom Truck One Source
As a division of Blackstone, the cash at Custom Truck One Source has been free-flowing, though I suspect they are now feeling the heat as well. By Heavy-Truck Dealer.
Creditors trying to repossess trucks over the weekend; thousands of drivers on the road, some stranded; employees left in the dark; shares plunge 93% at the open, from nearly nothing to practically nothing. Read… Accounting Fraud & Freight Recession Topple Celadon, Largest Truckload-Carrier Bankruptcy in US History
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Can I get a low mileage used sleeper for less than a new deluxe pickup truck? I’m want to sit up high with the truckers but I don’t want a trailer to jack knife on me. Plus they’ve really dominating horns to vent one’s road rage with.
I want a tank. That way I just drive over cars in my way during rush hour.
You mean “crush hour” ;-)
I want a tank. (as seen on another site)
Well then why don’t you get one?
Because they cost close to a million dollars and that don’t include floor mats. I don’t have that kind of money.
Now wait a second. you are a consumer and you have credit cards, right?
Yes but how am I going to pay the credit card company. They will come after me.
Don’t be silly. You have a tank.
A good used tank (not an APC) can be had for under $100,000, but getting it into the USA is problematic.
lot’s of guy’s have tanks, tanks not capable of shooting war-heads aren’t controlled.
No different than owning a D7 or bigger CAT, most logging cat’s are covered in 3/4″ steel plate.
Problem of course is a 200,000 LB rig, with steel tracks is a one time on an asphalt road :)
Top speed of the most expensive tanks on earth are some 35mph, and your tank under $1M, will probably not do better than 5mph.
Now about 1/2 the states do allowed ‘destructive devices’ to be possessed, so lots of guys own fully armed tanks, which are legal, and usually like minded people get together at places like Burning Man.
Yeah, or maybe find a vacant lot in LA where you could park several of them to rent out as shelter for the homeless. HUD could maybe include them in its Section 8 housing program, thus relieving two problems at once, the sleeper oversupply and housing undersupply while also supplying additional Treasury notes to the bond market.
Rumor has it Boeing is looking at leasing 737 Max as homeless shelters. Supposedly there are State and Federal funds available.
Best idea yet for the 737 Max. How does the CEO still have his job?
Laurence Hunt,
He doesn’t, as of last weekend. So the question should be: Why wasn’t he fired when the scandal broke earlier in the year?
It’s not a good recommendation for the board of directors that he lasted this long, Wolf. This company is going to require a deep remake!
Agreed.
Of course, the immediately previous CEO was really the patsy. The real culprit was Boeing’s CEO from 2012, when wind tunnel testing showed they had an airframe with poor stability characteristics at early phases of flight. To keep costs low, they continued along a path that could not be justified technically.
Since then, Boeing was able to bring political pressure to keep the FAA from conducting a proper certification. Now Boeing and the FAA are in trouble.
Boeing. Negative book value. That says everything.
If the Max problems cannot be fixed – or they sign off without properly fixing it and another one goes down, Boeing will surely need to be bailed out.
Considering that there are several hundred 737s parked in the greater Seattle area right now, it is actually a reasonable idea.
As for Boeing’s Board of Directors, they should all be fired. Boeing needs a new rule: You can’t be on Boeing’s board and you can’t be a Boeing executive, unless you have a pilot’s license.
LOL! I wouldn’t be surprised to see the price of diesel collapse as well. Just wait until Amazon releases the drones. Talk about some pissed off small truck carriers! You think small truck sales are bad now? BTW–I’m in LA today and the traffic at stores aint much to talk about; but, the homeless dangredn shore is. It’s bad, bad enough. Bad enough to state the employment numbers are horse hooey. The jobs that are available right now just suck. That doesn’t give a true account of the total picture…
Trumps trade war, which was a complete failure unless alone is cognitively deficient, is also.responsoble.for.this.mess
Ha, your comment does not make complete sense. Your grammar is hopeless.
Actually, if you replace the obviously auto-corrected “alone” with “one” the grammar is just fine. It’s. The. Horrid. Punctuation. That. Needs. Work.
I know a guy who just spent 50K refurbing a tractor that struck me as kind of old just from a walk around.
Seemed like a bit of a leap. Seems more after reading this.
He probably started the project when the market was super-hot, like during the first 8 months last year.
There is more value in the old truck vs new. Old trucks exempt from ELD, (any truck before year 2000). There is no after treatment problems and high repair bills. Cheaper parts etc.
I have a friend who will be very busy.
With each downturn he jumps in and buys and repurposes.
Does very well.
Hard to get out in front of the dealerships
Going after fleet trucks from the oil companies.
I’ve seen some very nice tractors hauling sizeable travel trailers this past year. I always thought the operators were retired truckers, but maybe not.
I expect Daimler Trucks here in Portland (DTNA) to announce layoffs at both the Western Star Factory and at the big new headquarters building. In the last downturn both of these were spared because W.S. was making fracking rigs and the white shirts and engineers at the headquarters building were shielded because Daimler’s auto business was still doing well and providing the cash flow to avoid layoffs. But this time is different. I expect these layoffs ( my guess only, no evidence mind you) along with the upcoming layoffs at Boeing Portland and all the big Boeing subs around here will kick of the recession in Stumptown and start the real estate market down the slippery slope.
Construction is hurting? Haven’t seen the sand and gravel haulers as much. Not sure what the owner operator ratio is, but if you paying off your dirt hauler and you have to park it in the back, that’s not good on the family finances. https://gainspainscapital.com/ Maybe the economy is in better shape and we should ignore these standard recession indicators. Service will save us?
That is kind of the point about the ‘modern’ economic system. I’m old but not old enough to remember draught animals. I guess if you owned them they were biological units so if you had no work for them they could sort of survive on their own. They ate grass or hay and could live in the back yard and fertilize the soil. If you have machinery you have to insure and pay interest on the loan you used to buy it so it can’t take the season off. Plus government wants you to register and pay tax too so there is no rest for the weary. If you can’t use it it must pass into stronger hands. Keeps everyone hopping for better or worse.
In addition, if things get really bad, you can’t slaughter one of your tractors and eat for the winter.
In ancient times when humans were mainly farmers, there were no recessions or GFCs, instead there was drought, crop failures from pestilence, disease, and of course, constant war with neighboring tribes. Which would lead to mass famine and death. The Four Horsemen.
Turn the draft animals out to fend for themselves? Not in a drought or crop failure. You’d be eating them first
Recessions and GFCs are way better by comparison
This was a most interesting article and insight.
Wolf, I went back through the transportation category articles and you have really been reporting on this for a while. I noticed that the earliest article where you report % change for Class 8 trucks only goes back to 2013.
I am curious what the relationship these Class 8 cycles have with the overall economy.
Not asking for a long response in these comments but perhaps it could be a topic for a later article
Thanks
michael,
The relationship between Class-8 truck orders is with the goods-producing sector, particularly industrial production.
But the US economy is 70% services (finance & insurance being by far the top, then healthcare, then professional and information services). The overall economy is critically dependent on services.
When the goods-producing sector declines, as is the case right now, it lowers economic growth a little, but doesn’t cause a recession.
A recession is caused by services, last time when the financial system was on the verge of collapse; and before then when tech (much of which is in professional and information services) collapsed.
A recession is caused by services, last time when the financial system was on the verge of collapse
I think you’ll find that recessions occur when the financial system cannot sustain its overreach, one way or another, with very few exceptions. The opacity of the financial system in turn makes it difficult to predict when a recession will be triggered. But not impossible. And there may be sufficient evidence to promote my conjecture to a the status of a theory.
No recession presently appears to be on the horizon, despite headwinds in the real economy, services included, primarily because the overreach of the financial system is sustained by decreasing interest rates. Not just low rates, but decreasing. You might expect that reversal of NIRP policies may negatively affect that sustainability.
I think you’ll also find that several of the causes cited conventionally are actually effects. Nixon’s wage and price controls, for example, are frequently cited as a primary ’cause’ of the recession in the early 1970s, implemented as a response to inflation – but without explaining how that inflation came about in the first place, which comes back to finance.
Certainly the present escalation of debt cannot go on forever, but how far can it go, really, even with ZIRP policies? That is not a rhetorical question. Powell has been nervous and has been equivocating, and he probably has good reason to be.
When debt servicing becomes 100% of economic output and you can’t afford shoes or a cracker because the collectors took your entire paycheck. Wait, but that can’t happen because who bought your product? The collectors? Debt is an asset. Think about money velocity and the circle of money flows and where is it pooling right now. It finds its way back into the consumer circle generally by… You tell me. So having thought about it, can we see how credit in its many various forms drives the economy? The economy is thoroughly financialized at this point. It’ll crack when asset owners go risk-off.
Thank you that makes perfect sense.
Went to LA these past few days. This time used Lyft exclusively (my first time ever using Lyft/Uber). instead of renting a car.
It was totally worth it! It would have cost $80 a day to rent a compact car, plus $20 a day parking at the hotel. Not to mention the awful traffic on the 405. And the fact that the last time I went to LA I got a very expensive traffic ticket and a horrible rental car with a bad battery that stranded us in Camarillo.
Contrary to all the negative media reports about the Lyft/Uber drivers being used and abused and unhappy, all the drivers seemed happy doing their job.
One guy had a part time dream job of making high end clothes for the numerous red carpet events in town. Working for Lyft/Uber (he did both, at the same time) allowed him to be on call for whenever a dress needed to be made ASAP.
He said it was way better than minimum wage and let him choose his hours. He said all the thousands of aspiring actors and actresses in LA worked Lyft/Uber now. Some, he knew had been to 7,000 -8,000 auditions, doing 7-8 auditions a day.
In the old days, I said to him, a lot of them worked as waiters or other jobs. I mentioned that Rami Malek had once delivered pizzas.
Yes, he replied, and this often meant they missed out on crucial auditions because they couldn’t get off work.
Finally, I mentioned to him that a lot of people believed that Uber/Lyft were not sustainable in the long term because they weren’t making any money and were just entirely financed by debt.
The guy chuckled and said “Well I’m not thinking that far ahead”
This service economy is TOTALLY sailing along on a gigantic sea of debt which is going to blow up at some point
But, it’s nice to enjoy the perks for now
There is a big Volvo truck and heavy equipment dealership near me. They have expanded in the last few years. Anxious to see how this affects them as they are a part of the local economy.
Oil well drilling is becoming more efficient. More wells were drilled from a single pad. They have an inventory of drilled wells that have not been fracked. They continued to produce more oil with less drilling as they moved to richer shale formations.
In a capitalist system less profitable companies are allowed to fail. Profitable ones may bid for the assets of bankrupted firms.
New and used oilfield equipment getting cheaper might be good for producers.
I would like to see autonomous vehicles do the driving.
They continued to produce more oil with less drilling as they moved to richer shale formations
That’s rather counterintuitive. One would think they’d start with the best formations and go for second-best later.
New and used oilfield equipment getting cheaper might be good for producers.
I smell boosterism. Don’t you think the fossil fuel industry should pay for advertising?
I would like to see autonomous vehicles do the driving.
Putting all the gig drivers and truckers out of work. Besides, autonomous vehicles can be hacked, turning them into weapons. Is that something you want to look forward to?
DUCS are declining. Close in wells have a very bad child well effect. First tier shale is about used up, so no richer formations.
There was recently a presentation put out by energy consulting firm Wood MacKenzie debunking this idea that drilling multiple wells on a single pad is increasing efficiency. This drilling of “child wells” near the”parent” well was pitched as the great hope of the fracking industry, but it has turned out to be disappointing as the output of the child wells is much lower than the parent well and in many cases cannibalizes the output of the parent well. Also ,the notion that they are moving on to richer formations is wishful thinking as they have almost certainly gone for the low hanging fruit first. Despite it’s record output there is no sign that the tight oil industry will turn a profit (or positive cash flow) any time soon.
“In a capitalist system less profitable companies are allowed to fail.”
We are talking about the fracking industry here right?
I don’t know whether to laugh or cry.
I would go with laughing. Because the fed caused tons of money to flow into the losing shale business you can fill you car for half what it should be to make money. But no, this is not a capitalist system.
I don’t know whether to laugh or cry.
Neither. You shake your head, control your emotions, and move on.
David H, re autonomous vehicles, you would be amazed how much technology is/will be needed in a road vehicle to replace the average human driver. IMHO it will take another decade for the technology to both work reliably and be affordable. Fortunately here in Oz a lot of work is being done in the mining industry that can be applied to road vehicles in the future.
Future tech will have a large determination for autonomous opportunities. But on the other hand, the relaxation of safe driving policies and what ‘real world’ pressures will have on these acceptable policies, will determine the success (both financial and at safety’s expense) and probability of autonomous vehicles. There will never be a perfect system, only a system with compromises.
25 years at least…I’ll be dead and expect some others here too….
In a free market the cost of capital is set by the market. Banks acquire reserves by growing deposits. When the demand for capital is expanding the price of capital rises, and you have an inflationary system. The 2015 oil price collapse came after the Fed held rates too low too long. The subsequent bump in corporate high yield bonds has not diminished in any way, so another dip in energy prices seems possible. In energy (services) the two economies are highly correlated. The primary concern with corporate bonds is quality, there is a secondary issue concerning the backup of over production based on easy credit (when gov runs it’s bond printing press the money recycles, or is wasted) New age financial engineering meets the old supply demand economy, and we celebrate (temporarily) the drop in energy prices which helps consumers, shippers, and ecommerce. So yeah trucking is a recession indicator. The oil which the US exports should be providing more lift for GDP.
Ambrose,
No, the 2015 oil price collapse came when the Saudis cranked their oil spigots on deliberately to drive oil prices down and to drive US frackers out of business
Overall, I would say that the contraction in debt availability will hurt the holders of that debt the most.
The oil drilling industry has ALWAYS been quite adept and imaginative at prying money loose from somebody. This has been going on for many decades
The latest schemes are the Drillco deals, which seem designed to screw all the previous investors in the sunk costs of fracking a shale field while limiting the risks of the new investors.
That vulture capitalist Sam Zell has gotten into Drillco deals tells me that the fracking industry is not doomed yet, not by a long shot
Gandalf,
Sam Zell didn’t buy stocks or bonds of shale oil drillers. The way these DrillCo deals are structured is that once the oil starts flowing from the well, DrillCo gets the majority of the cash flow from the newly flowing oil until its investment is paid back and a pre-agreed profit has been reached. These are very expensive funds for the oil company. And the oil provides a lot of security of DrillCo.
Wolf, please re-read my post. I did say that the main effect of these Drillco deals would be to screw the previous stakeholders who bought the stocks and bonds to get the fracking going at these shale drilling sites
There’s a lot of sunk costs at a drilling site – obtaining the mineral rights, the geophysical surveys, the storage tanks, piping to the storage tanks, roads connecting to the nearest paved road that can support a truck, etc.
All that was paid for by the stock and bond buyers of that fracking company for its shale developments, who didn’t bother to restrict how their investments could be used by the frackers to siphon off future production revenue through these Drillco deals on those properties.
The Drillco deals just pay for future drilling at these sites, which the fracking company has to do anyway since the average shale well drilled plays out after only three years. The Drillco deals siphon off the future revenue of these wells with the preproduction costs mostly paid by the previous investors
I threw Zell’s name in precisely because the guy is a vulture capitalist and is NOT investing in stocks and bonds of these fracking companies – he’s going to be there to suck their blood and oil/gas out through these Drillco deals
Gandalf,
Yes. You nailed it.
When the FED quit QE, the oil price crapped.
Autonomous vehicles do drive now. You just have to keep both hands on the wheel and pay close attention to the road or you will be prompted to do so.
And so it shall probably always be unless you wish to be shuttled around like a kiddie ride at the fair.
Uh-oh, horrible realization alert:
Existing Autonomous Vehicles will be just fine, once the Corps get their lobbyists to change laws about traffic “accident” liability. That will be much cheaper, simpler, and quicker than perfecting the software. Have the big players paid their dues to ALEC yet?
Streets will be much “safer” once we eliminate all the pedestrians, cyclists, children, and other riff-raff.
The GFC is not gone. Nor are the causes.
Like a deadly virus, it has been lying dormant, mutating, and STRENGTHENING.
The central bank’s antibiotics are no longer keeping it under control. And they appear to have no new ones in the pipeline.
Is 2020 the year that the GFC virus, made far more powerful after developing a resistance to the central banks’ decade+ of antibiotics, has another go at the global economy?
The symptoms are everywhere now.
Those who claim there is no recession in sight have been reading too many ‘official’ reports, made up of massaged numbers and some outright lies.
Most people in the real world have been feeling some financial pain for awhile now. Eg, the ever expanding consumer and credit card debt, and dwindling bank account levels.
LostinRMH,
There are some places in the US that are still in trouble, but many other places are booming. Also, there are many people who are not doing well, but many others are doing very well.
To your specific data:
“ever expanding consumer and credit card debt”:
Credit card debt was at $1.04 trillion at the end of Q3. This is up just 6% from Q3 2008. Over these 11 years, the Consumer Price Index rose 22% and the population grew about 9%. So adjusted for inflation and per-capita, consumers have shed credit card debt. Credit card debt in Q3 was down to 4.8% of GDP, down from 6.8% of GDP in Q3 2008. Meaning, per capita and adjusted for inflation, consumers have a lot less credit card debt than they used to have 11 years ago.
However, student loans are a huge problem. But student loans have nothing to do with the economy being in a depression, but with how our Education-Industrial-Financial complex rips everyone off.
https://wolfstreet.com/2019/11/08/the-state-of-the-american-debt-slaves-q3-2019-paying-the-university-corporate-financial-complex/
“dwindling bank account levels”:
savings deposits at commercial banks in November jumped 6% from a year ago to an all-time record of $8.7 trillion (that’s just at commercial banks, not including credit unions and the like).
https://fred.stlouisfed.org/series/SVGCBSL
Don’t understand how student loans couldn’t have something to do with current economic problems? Doesn’t money that is currently going into student loans could be going into other needs, like housing, transportation, etc. ? One of the biggest concerns I heard people discuss is the incredible cost of health care. Many people can’t afford medical insurance if they want to retire early or in allotted time unless you get one of the government jobs.
LostinRMH,
You don’t get it.
I see in society that it is not about what you have, it is about believing you have more than others.
If you have to eat a spoon of excrement a day but see that others around you are having to eat two spoons of excrement, you feel better about yourself despite the fact that you are still eating excrement.
OFF TOPIC, this concerns the Fed repo.
There was an intriguing article at Bloomberg today. https://www.bloomberg.com/news/articles/2019-12-23/the-fed-may-quietly-be-doing-more-to-calm-repo-than-you-realize
They suspect the Fed is reducing amount of the reverse repo for the foreign repo pool. This amount is above $250 billion.
Foreign central banks deposit this amount at the NY fed and earn a small interest. What experts want the Fed to do, is remove the foreign repo pool so the foreign central banks lend this money at repo instead.
This week, they, through their FIMA noncompetitive accounts bought $1 billion each in 4, 8, 16 and 26 week Bill’s. While $4b a week is small compared to 250 billion, that’s a signal that foreign central banks would rather buy Treasuries than lend at repo.
It looks like the Fed is stock with repo not unless the Treasury itself enters the repo market.
I saw this article and thought it was somewhat of a red herring. There was a drop of $27 billion over the past two weeks. In July through November, the amounts had jumped up and down in a range. But $27 billion in two weeks isn’t much, given the other Fed mounts we’re talking about, and this balance is very volatile, jumping up and down routinely by large amounts. For example, in early July, in just one week, it jumped by $26 billion, and no one said anything about that. The current balance is back where it had been in April. And the drop sort-of undid the 1-week jump in July. So for me to be convinced that something significant is going on here, I would have to see a bigger and more sustained move.
You will.
The message is that lending to the short term money markets (repos) has gotten much more risky, so that the normal cost of this extra risk has caused the interest rates to skyrocket in the private lending markets
So, only the Fed is willing to continue to feed these ravenous dogs of crappy highly leveraged finance. By doing so, just like it did with the THREE rate reductions to squash the yield curve inversion, it is prolonging the crappy leveraged debt financed “Trump Boom” and making the future debt bomb explosion ever bigger
“Trump Boom” was Robert Shiller’s term by the way. That such a respected economist would jump on the bandwagon and predict years more of growth of the stock market and economy has got to be the ultimate throwing in the toil and jumping onboard the Titanic as it sets off on the sea of debt that is really what is fueling all of the rise in the stock market and alleged economic growth
Not sure what the repo situation implies – but here are a few of the more ominous headlines that have caught my attention of recent (to add to the heavy truck headline):
Exports dropped for an 11th consecutive month and by 14.7% in October from a year earlier, the data showed, the biggest decline since January 2016 and worse than a 13.8% fall tipped in a Reuters survey.
Global car sales expected to slide by 3.1 million this year in steepest drop since Great Recession
The bottomline is that the Indian economy is like sky-diving from a height of 36000 feet above sea level without a parachute. It is a free fall.
On Thursday, data showed that new orders for German manufactured goods declined by 2.7% in July on the previous month and 5.6% month on month, a major drop for a country that’s economy is also 50% manufacturing.
All of these canaries have been gagging for many months now. Normally the central banks would step in to prop up any sag. So I will assume they are (in secret) furiously trying to right the ship – but are unable to do so.
The demon is peering out from behind the curtain. QUICK!!! Pull the curtain. Pull the curtain!!!! Don’t let anyone see him.
First headline was re Korea….
Funny Accounting
All one has to do is open an H.4.1 report and go directly to:
2. Maturity Distribution of Securities, Loans, and Selected Other Assets and Liabilities, (date)
In this section you will see both Repo (Repurchase Agreements) and Reverse Repo in the same page.
One realizes that from a RESERVES point of view, these two counteract each other.
Repo ADDS Reserves, while Reverse Repo REDUCES Reserves.
The fact is Reverse Repo has (at least after the GFC accomodation) been HIGHER than Repo!!!
So the Fed actually has been draining reserves that they created a lot of during Q.E.
When they simply overdo it, they add some back ….
Repo is supposed to be one of the ways the Fed ADDS Liquidity to the monetary system.
Think of repo as a short term loan from the Fed with the borrower paying the interest.
Reverse Repo is just a way the Fed pays interest to banks who have too much cash but cannot legally be paid Interest on Excess Reserves.
There are 2 main streams of Reverse Repo. The much larger one is the Foreing Repo Pool. Except for the total amount reported in h.4.1, you won’t get more details about this. The second and much smaller Reverse Repo is the one conducted by the FOMC under Domestic Market Operations. (I think they end up as the Other in h.4.1. but you can follow them at the NY Fed’s OPERATIONAL page). The Fed Home Loan Banks are the major users of this category.
Since Q.E. created reserves out of thin air (the other side is debt), one should know that are dealing with manufactured monetary instruments. Reacting to an overage or shortage of a bogus manufactured thing is very funny. That’s all we are doing now. They need a crisis to print more money and create more reserves out of thin air.
Even funnier is that the US isn’t the only one doing the same trick.
Wait, what happened to “booming freight market” and “shortage of truck drivers?” And I remember TL and LTL freight rates started jumping about … a year-and-a -half ago? What happened?
Was the increased demand all channel-stuffing and front-running to get ahead of the tariffs?
I have to wonder with the central banker’s manipulating interest rates artificially lower, how this translated into this trucking boom now bust.
With a rigged market price for money, many in the trucking business may have been fooled into thinking demand for trucking was greater than it really was.
This incorrect market price perception would have affected everybody up and down the trucking business. Truckers would over buy/borrow for new trucks, truck lenders over extend credit, dealers overstock new trucks, and manufacturers over produce new trucks, etc.
Maybe things just got so out of wack that finally reality couldn’t be held at bay any longer despite all the money thrown at it.
“As a division of Blackstone, the cash at Custom Truck One Source has been free-flowing…”
Why might this be? What special dispensation does private equity get? Could it be the near decade of free money that has allowed these ultra-levered sharks to scrape up nearly a third of the U.S. economy? More than anything, the Fed MUST keep the money flowing to keep these monsters alive.
The obvious solution to this is for the government to immediately require a dramatic increase in the quantity of Finance and Insurance shipped by truck, as they comprise so much of our economy. /end sarc
Just put up a new Festivus pole. I’m using a square aluminum extrusion this year — dramatically different.
For those not celebrating Festivus today —
A very Merry Christmas to all.
Happy Hanukkah where appropriate.
And the best of Season’s Greetings — especially to Wolf.
And again a day late and a dollar short — before someone points that out. — Best Wishes
Printing money, whether paper or digital is what keeps the baloon from exploding. The “tariffs” are extra taxes on us – consumers not on China. Finance, insurance,healthcare, enormous military budget and bloated beauracracy will sink the ship. Reference Roman Empire for once. 70% of people don’t have $500 to cover emergency expenses and they are expected to carry on and keep the ship going!? Ain’t going to last for long! I am writing broadly lacking any fancy words, from the common man point of view, who is drowned in debt. In 07 I saw the tsunami comming and now is even worse.